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Fed is clearly on a path of returning rates to normal: Williams

John Williams, president of the Federal Reserve Bank of San Francisco, speaks during an interview with Reuters in San Francisco, California December 18, 2015. REUTERS/Stephen Lam

SAN FRANCISCO (Reuters) - The Federal Reserve is clearly on a path of returning interest rates to a normal level of 3 percent to 3.5 percent over the next few years, a top Federal Reserve official said on Friday.

Raising rates in December was the right thing to do, given the improvement in the labor market, San Francisco Federal Reserve Bank President John Williams said. Further and gradual rate increases "make sense" he said, although the exact timing of rate hikes will depend on the economic data.

U.S. domestic demand is strong, he said, and is offsetting weakness in exports and manufacturing that is an effect of weak growth abroad, particularly in China.

(Reporting by Ann Saphir; Editing by Meredith Mazzilli)